If you fail to make payments, creditors will try to recoup the funds you owe them. In some cases, they may take legal action and request a bank levy. This may freeze your bank account and give creditors the right to take the funds directly from it.
You won’t be able to access the money in your account until the debt is paid. If you find yourself in this situation, you may wonder what you can do. While your options are limited, there are some ways you can fight a creditor’s account levy.
What is a creditor’s account levy?
A bank account levy allows a creditor to legally take funds from your bank account. When a bank gets notification of this legal action, it will freeze your account and send the appropriate funds to your creditor. In turn, your creditor uses the funds to pay down the debt you owe.
How a levy works
A bank levy is usually the result of a months-long process, so understanding the timeline can help you potentially avoid the levy. It starts once you fall behind on payments. Depending on the contract you signed, your lender may consider your account delinquent after one or more missed payments. The lender will likely report those missed payments to the credit bureaus, which can damage your credit history.
Eventually, the creditor may try to recoup its money by filing a lawsuit and proving to the courts that you owe the debt. The creditor has to notify you at this point, which should signal that a levy could be in your future. If the creditor successfully gets a court judgment against you, it has stronger tools to collect that debt. One of these tools is a bank account levy.
Once the creditor receives the go-ahead for a bank account levy, it must provide the judgment to your bank. The bank will freeze your account and send the appropriate funds to the creditor. You won’t be able to access the money in your account until the creditor gets the money it’s due.
8 ways to fight an account levy
You might be able to prevent or limit levies to your account. To discuss options, contact an attorney who’s familiar with this type of law in your area. Below are some of the possible approaches you can try.
1. Prove that the creditor made an error
Creditors make mistakes all the time. If you don’t believe the debt is yours or if you think the amount is incorrect, send a debt validation letter via certified mail. The letter should state that you dispute the validity of the debt and would like documentation that verifies it.
If you have already paid off the debt, find proof that supports your case. This can be in the form of a letter, receipt, or statement you received once you made your last payment. You can fight the levy if you don’t owe the money.
2. Negotiate with the creditor
The debt-collection process can be time-consuming and expensive, so lenders may prefer working with you over levying your bank account. An attorney or credit counselor can help facilitate these negotiations.
Depending on the lender, your options may include a modified payment, a lower interest rate, or a hardship program. If the creditor plans to levy more funds, negotiations may prevent it. Plus, negotiating gives you some control over the situation.
3. Show that you’ve been a victim of identity theft
If someone else fraudulently applied for the debt in question, then you’ve been a victim of identity theft. You can fight the levy by proving that someone else received the funds.
An identity theft report is a great way to prove you’ve been a victim of identity theft. To get one, submit a theft complaint to the Federal Trade Commission (FTC) via IdentityTheft.gov. Then print the report called “Identity Theft Affidavit.” Next, file a police report and attach it to the Identity Theft Affidavit.
4. Check the statute of limitations
Creditors have a certain time frame, called the statute of limitations, to legally collect debt from you. Check your state and local laws for the specific type of debt. Reach out to a lawyer if you’re unsure or need clarity. If this time frame has passed, your creditor might not be allowed to collect money from your bank account.
5. File bankruptcy
You may be able to recoup some or all of the money if you immediately file for bankruptcy. This option varies from state to state and should be a last resort. If you are able to “exempt” those funds that were levied from your bank, the creditor could be forced to return the money to you. A bankruptcy attorney in your area will be able to tell you whether some, none or all of the funds could be returned after you file bankruptcy papers.
6. Contest the lawsuit
Contesting the lawsuit could be impossible, because the creditor’s judgment could be too old to contest. However, if you were not properly served, you could have the judgment set aside. This can be done without professional legal help, but it is a complicated process and will not ensure that the funds will be returned. Therefore, it’s a good idea to consult an attorney.
7. Stop using your bank account
If you can’t file for bankruptcy and the judgment can’t be overturned, then you will be unable to keep funds in your bank account. The creditor could continuously levy your bank account until the balance is paid in full. You could be relegated to using cashier’s checks and money orders to pay your bills.
8. Open a new account
While your levied account is frozen, you can open a new one. Be sure to move any automatic bill payments that you’ve set up to the new account so that you don’t miss any payments and fall deeper into debt.
A drained bank account is the last thing you want to see. If a creditor has levied your funds, it’s important to understand that you might be able to recoup your money. If you think the creditor made an error or you’ve been a victim of identity theft, reach out to the lender and explain the situation. Otherwise, a lawyer or a credit counselor can help you with the next steps.